“Dodd-Frank” is shorthand for the Wall Street Reform and Consumer Protection Act, whose chief co-sponsors on Capitol Hill were Senator Chris Dodd and Representative Barney Frank. These reforms — that the President signed into law exactly five years ago today — and others the Administration has put in place since the crisis represent the most sweeping set of financial reforms since the Great Depression.
Why does it matter and why should you care? Let’s take a walk down memory lane.
(And if you just want a quick breakdown of the numbers behind five years of Wall Street reform, take a look here.)
1. Remember the CFPB? Wall Street reform created it.
“CFPB” stands for the Consumer Financial Protection Bureau: an independent watchdog responsible for writing and enforcing rules to protect you as you borrow and save. And Wall Street reform made it happen.
Here's why that's a big deal:
You’d be surprised at exactly what lenders were able to get away with during the housing bubble — including loading up a mortgage with extra costs to jack up their own compensation in the short term before shuffling that loan over to a third party, making it their problem. With these bad incentives, lenders steered borrowers toward bad products they couldn’t afford (even when they qualified for better, lower-cost options), often burying the terms of made-to-explode mortgages in the fine print.
Dodd-Frank fixed that. Today, lenders have to assess borrowers’ ability to pay a mortgage first. They have to take responsibility for the risks of the loans they make, giving them “skin in the game” to encourage responsible lending. And they will have to present them to the borrowers in clearer, easier-to-understand terms. And the CFPB is keeping all kinds of consumer lenders honest — from credit card companies, to mortgage lenders, to debt collectors, to student loan servicers. Since 2011, the CFPB’s enforcement actions have delivered nearly $11 billion in relief to more than 26 million consumers harmed by illegal practices — including a new action announced today.
(Those practices include deceptive marketing, unfair billing, and discriminatory practices by big banks and other financial institutions — and a whole lot more. Learn more about them here.)